It's nice to be back in Lithuania, to help get the autumn off to a good start
after the summer.

Of course, just now, the word "summer" brings up very different images for
different people.

In northern Europe, many people would be tempted to say, "Summer? What
summer? Did I miss it?"

The floods which hit the UK and other northern European countries certainly
did not reflect ideal holiday weather, and they weren't helpful for farmers,
either.

Meanwhile, in much of southern Europe, there was a little too much summer,
which resulted in serious and tragic forest fires.

It's not for me to say what the exact links are between these occurrences and
climate change. But the disruption and the media coverage certainly made people
think about our physical world, and the policies with which we care for it.
These policy areas include agriculture and rural development, of course.

Other issues related to agriculture also got into the media over the summer.
The price of milk would not normally be an editor's first choice for a headline
topic, but this summer, it really made waves in some countries.

Different people looked at the same facts and drew different conclusions. For
some commentators, the high prices meant that our dairy system was too
regulated. Others concluded that it was not regulated enough. Still others
blamed the retail giants. I will return to these issues later. But in any case,
people remembered that food does not arrive on the table all by itself.

Interest in the issue of food supplies was also evident in connection with
the growing debate about biofuels. Until quite recently, this topic was of
interest mainly to professionals. Now, many members of the general public worry
that biofuel feedstock competes with food crops for land, and that this could
have implications for food production.

As I have said many times, the European Union has fixed its biofuel usage
targets with great care. If we want biofuels to make up 10 per cent of our
transport fuel usage by 2020, our studies estimate that this would use about 15
per cent of our arable land by then – some 17.5 million hectares.

So overall, this summer was a time when people were thinking about our
environment and our food supply.

I'm very glad about this, because it adds to my sense of the importance of
our policy work in these areas. The CAP has a huge impact on many things that
matter to us a great deal. So this autumn, as always, I'm very serious about the
work ahead.

Over the next few months, some of this work is still about making sure that
individual sectoral reforms work as they should.

This is true, for example, of the sugar sector. I believe the principles of
the 2006 reform are sound. However, applications to use the sugar restructuring
fund have not been at the level that we need, and we must do something about
it.

There are no easy options here: we must bring production quota down to the
right level. We do this either by boosting applications to the restructuring
fund, or simply by cutting quotas. So I look forward to an agreement on new
rules for the restructuring fund in the Agriculture Council ten days from
now.

We must also prepare to implement the recently agreed reform of the fruit and
vegetables sector. I'm very optimistic about this: the political deal that we
reached should hold something for producers in all Member States.

It's important to realise that many of the gains on offer in this reform will
come through Producer Organisations. Producers must be able to stand together if
they want to bargain effectively with the retail giants. Co-operation also opens
the door to valuable initiatives to raise competitiveness and care for the
environment.

None of this can happen in Member States which don't yet have a legal basis
in place for the existence of Producer Organisations. Therefore, I urge the
Lithuanian government to put in place the necessary legislation as soon as
possible.

I should also mention that we're making good progress with discussions on
reform of another sector: the wine sector. There are some difficult issues to
balance up here, but I hope we can reach a fruitful compromise in the next few
months.

More generally, as everyone in the European agricultural world knows, we're
getting closer to the launch of what I call the "Health Check" of the CAP.

I can't emphasise enough that this is not going to be a fundamental reform.
It's not about rethinking the essential principles of the reforms of 2003 and
subsequent years. It's about ensuring that those principles are being worked out
in practice in the context that we have now – as effectively, efficiently
and simply as possible.

Clearly, that context has shifted since 2003. We have more experience of
implementing new policies such as decoupling and cross-compliance. We have a
clearer idea of likely themes on international markets in the coming years
– the growing role of biofuels, for example. The European Union has gained
12 Member States. And we are developing our ideas and policies on climate
change.

Obviously, the real discussions about the Health Check will not begin until
the Commission publishes its initial reflections on the matter this autumn. But
in the meantime, I have chosen to air ideas in public fairly often so that the
debate can gather some speed beforehand.

Much of what is likely to appear in the Health Check will have direct
importance for Lithuania.

Cross-compliance will be back on the table. There is no question of watering
down its principles: these are essential if we want to keep public backing for
the CAP. However, we could make the system work rather more smoothly.

The report on cross-compliance which we produced earlier this year was a
starting-point; now we will carry on that work in the Health Check. An issue of
particular interest is the exact scope of cross-compliance: what it should
cover, what it should not.

We must also take a fresh look at our various market measures in the CAP,
such as intervention.

We must give particular thought to what happens when the milk quota system
finally comes to an end.

I say "when" rather than "if". Milk quotas simply do not fit in with the
competitive, market-oriented farming that the CAP now seeks to encourage.

The strait-jacket effect of the quota system has received particular
attention in recent weeks, as drought in producer countries and thirst in big
consumer countries have sent prices rocketing.

In general, we should see the rises in agricultural prices (as opposed to
retail prices) in their proper context. They are recovering from historically
low levels which they reached after the 2003 reform.

Even so, we have already begun taking appropriate action. Since June, all
dairy product export refunds have been set at zero, and we have sold all
existing stocks onto the European market.

Also, the 2003 CAP reform laid down that milk quotas in various Member States
would increase by 0.5 per cent per year over the period 2006 to 2008. This will
give us an extra 1.5 million tonnes of quota by the end of that period.

But it's clear that further steps may be necessary before the quota system
comes to an end – to help the industry to adjust, and possibly to help
boost supply. We are looking at this closely.

In the meantime, I hope that customers in the supermarkets will understand
that recent rises in consumer prices are not a purely agricultural issue. I
would question whether all the price increases in the shops are really justified
by increases in costs.

And this point does not apply only to dairy products, of course. People have
been noticing significant increases in the price of bread; but in fact the cost
of cereals makes up no more than approximately 4 per cent of that price!

I also note complaints from some farmers that higher retail revenues are not
being passed on to them.

I trust that the competent authorities will look closely at these issues,
where necessary.

Some aspects of the Health Check related will not be immediately relevant to
Lithuania, but they do have at least some relevance, because European
agriculture operates within a single market :

the possibility of raising the level of decoupling of direct payments from
production;

the possibility of increasing the modulation of funds out of direct payments
and into the rural development budget; and

the possibility of permanently ending compulsory
set-aside.

Another area of policy which is on the Health Check
agenda, and which will remain fundamental for meeting future challenges, is
rural development.

The Rural development policy is needed to meet the new challenges for our
environment arising from climate change, in managing water; and compensating for
a possible abolition of compulsory set-aside. An increase in modulation would go
along way to help finance these challenges to the rural development budget.

I'm glad that we're making good progress in finalising Lithuania's rural
development programme for 2007 to 2013, and that programmes for a number of
other Member States and regions have also been approved.

A number of countries, Lithuania included, are making it a priority of their
programmes to raise the competitiveness of their farm sectors – by giving
the lion's share of funding to "axis one" of rural development measures.

This is valid. The competitiveness measures are there for a reason. And it
was always understood that many farms in the New Member States in particular
would need to make good use of them.

Nevertheless, in the future more than ever, we will have to carefully balance
funding between competing goals.

Also, in the longer term, many Member States – "old" and "new" –
should give serious thought to spending more on diversification of the rural
economy and raising the quality of life in rural areas (currently categorised as
"axis three").

I say this because, although agriculture still has a pivotal role to play in
many of our rural areas, it is unlikely by itself to create the new jobs that
these areas will need for a sustainable future.

In 2004, average employment rates were 5 per cent higher in predominantly
urban areas than in predominantly rural areas. We would like to close this
gap.

I appreciate that there are constraints on funding: there is only so much
butter to be spread over a lot of bread. This is why, for the future, we must
make clear to politicians at the highest level just how much work our rural
development policy does. Securing enough money for this policy is a battle that
we must win.

Before I close, I ought to say a few words about an aspect of the
international context for all this: the Doha Round.

If I mention this only in passing, that's not because I think it unimportant.
But I have to say that the sands of time are running through our fingers rather
quickly, without decisive progress. We need a result soon.

My message is the same as it has been for many months. The European Union is
still pulling hard at the rope, and we will continue to do so. We want a deal,
and we will keep working for one. But it must be a balanced deal: with balance
between the different sections of the agricultural talks; and with balance
between agriculture, services and industrial goods.

So, ladies and gentlemen, a difficult summer is over, and has given many
people food for thought. Some of the topics that they have thought about will
be taken up in the CAP Health Check.

Unfortunately, not even the CAP can redistribute summer sunshine between
different parts of Europe. But in areas where the CAP can make an even more
positive difference than it already does, we are on the case.